How do the ACT’s renewable energy reverse auctions work?

Legislation framework

Under the Act Feed-in Tariff (FiT), entitlements can be awarded to support up to 650MW of renewable energy generation. This generation can be anywhere in the National Electricity Market (covering Tasmania, Victoria, South Australia, New South Wales and Queensland, as well as the ACT), provided the projects demonstrate exceptional economic development benefits to ACT renewable energy industries. This flexibility broadens competition and brings down costs.

To commence an auction, a Capacity Release is made by ‘Disallowable Instrument’ under the Act for some part of the 650MW available. The Capacity Release sets out the terms of the release such as the kind of renewable energy source that will be supported (e.g. wind or solar) and where the generators must be located (within the ACT, the Australian Capital Region, or in the National Electricity Market). The Minister can also specify whether capacity is to be allocated by competitive process (auction) or by direct grant.

Request for Proposals

When a Capacity Release is made, the Government releases a ‘Request for Proposals’ (RFP). This sets out the detailed terms of participating in the auction, how proposals will be considered in relation to ‘value for money’, and the overall governance framework.

Auctions have generally included the following Evaluation Criteria, weighted as described in the table below:

Proponents must set at what what level compensation will be capped in the event of a future change in Territory law.

The scores are compared to the FiT price that the proposal is seeking to determine the overall ‘value for money’.

Auction Governance

Proposals received in Auction rounds are reviewed by an Advisory Panel, who are informed by expert analysis by technical and financial consultants. The process is facilitated by a Secretariat within the Environment and Planning Directorate.

Ultimately, the Advisory Panel and the Directorate make recommendations to the Minister regarding which proposals represent the best value for money, and the Minister decides which proposals should be awarded a FiT entitlement.

Feed-in Tariff Entitlements

Successful proposals are awarded of a Grant of FiT Entitlement. This is a ‘Notifiable Instrument’ under the Act that outlines who the Proponent is, describes the generating system and outlines the price of the FiT that will be paid for generation.

The Grant of FiT Entitlement Is conditional on the Proponent meeting more detailed conditions and milestones set out in aDeed of Entitlement which is signed by the Government and the Proponent. These conditions include meeting project milestones, minimum generation amounts and commitments made by proponents regarding community engagement and local investment.

Paying the feed-in tariff and the ‘contract for difference’ approach

The FiT is paid to the Proponent on a monthly basis by ACT electricity distributor (ActewAGL Distribution) for the ‘eligible electricity’ generated. Eligible electricity excludes any non-renewables (e.g. gas) and some ancillary services. In addition, the generator must have registered Large-scale Generation Certificates (LGCs) for all eligible generation and transfer them to the Territory.

LGCs provide proof that the generation is from a renewable energy source with each LGC representing one MWh of eligible generation. LGCs are administered by the Commonwealth Government Clean Energy Regulator.

The payments made by ActewAGL Distribution are made based on a ‘contract for difference’ basis. This means ActewAGL Distribution pays the generator, for each MWh, the difference between the generator’s FiT price and the value of that MWh in the wholesale market in the relevant wholesale market pool. This occurs for each 30 minute trading interval and is aggregated and paid monthly in arrears.

If, over the course of a month, the market value is below the FiT price, ActewAGL Distribution will pay the generator a top up amount. If the market price is higher than the FiT amount, ActewAGL Distribution will be paid the difference, and the savings are passed on the all ACT electricity consumers.

In this way, the generator has a very low risk associated with future market prices making the project highly attractive to project developers and financiers. This drives competition in the auction processes and brings down prices.

Figure 1 provides a simplified example* of actual wholesale market movements in Victoria on 1 July 2016. In this example the FiT price is set for the Coonooer Bridge Wind Farm at $81.50 per MWh. The contract for difference payment arrangement means that for the periods when the wholesale market was less than the FiT price ACT consumers paid the generator. When the wholesale market was higher than the FiT price, the payments were reversed. This difference is subtracted from the wholesale market earnings by the generator with the result that at all times the generator received exactly$81.50 for all the electricity it produced.

An interesting outcome of the process is that the ACT electricity users are insulated from future wholesale price movements. If wholesale electricity prices increase over time, this will be offset by reductions in FiT payments the community will have to carry.

Thanks to this approach, by 2020, when the ACT’s electricity supply is sourced from 100% renewable energy generation, electricity prices in the Territory will be much more stable and predictable than anywhere else in Australia. ACT consumers will be protected from extremely high wholesale prices because of the hedging provided by the contract for difference model and will continue to enjoy among the cheapest (and greenest) electricity supplies in the nation.

More information about how the ACT’s 100% renewable energy legislation and target can be found here. We have also answered your questions about how the Government will ensure the reliability of our electricity supply with 100% renewable energy here.

Accounting for renewable energy in the national market

The renewable electricity supplied by the Territory’s large-scale generators will be accredited as GreenPowerTM under the National GreenPower Program Rules. All the LGCs from all generators will be transferred to the Territory and voluntarily surrendered to the Clean Energy Regulator. In this way the government ensures that generation is above and beyond national renewable energy targets and that it is resulting in additional carbon abatement in the electricity sector.